The Small Business Technology Transfer Research (STTR) Phase II project will develop an inference engine for an intelligent imaging system that can detect and eliminate surface defects in hot rolling operations. These defects account for roughly 50% of steel rejects. The proposed product is an automatic system that generates appropriate corrective actions for defect elimination. It is proposed to further develop the inference engine and validate it on selected industrial cases. The potential value of the research is to reduce material waste by over 200,000 tons of steel, or $120 million in productivity, per year for the US steel industry. It is also expected to deliver benefits in North America with energy savings of 1.14 Tetra W-hr and reduced carbon-equivalent emission of 94,000 tons per year. Other benefits include reduced water usage and more efficient downstream processes. The project carries strong educational implication, with the company working closely with academia and facilitating student interns.